State aid: Commission adopts rules on national support for industry electricity costs in context of the EU Emission Trading Scheme

Brussels, 22 May 2012 - The European Commission has adopted a framework under which Member states may compensate some electro-intensive users, such as steel and aluminium producers, for part of the higher electricity costs expected to result from a change to the EU Emissions Trading Scheme (ETS) as from 2013. The rules ensure that national support measures are designed in a way that preserves the EU objective of decarbonising the European economy and maintains a level playing field among competitors in the internal market. The sectors deemed eligible for compensation include producers of aluminium, copper, fertilisers, steel, paper, cotton, chemicals and some plastics.

Commission Vice-President in charge of competition policy Joaquín Almunia said: "If production shifts from the EU to third countries with less environmental regulation , this could undermine our objective of a global reduction of greenhouse gas emissions. There may be such a risk in some sectors, given the expected impact of the ETS on electricity costs as from 2013. The rules adopted today allow Member States to address this issue while maintaining incentives to decarbonise production and consumption and minimising any distortions of competition."

The reform of the ETS agreed in 2009 and taking effect from 2013 onwards means that electricity bills for companies in the EU are expected to increase as a result of the stricter cap under the ETS post 2012. The Commission has therefore adopted a Communication setting out the criteria under which Member States may support some categories of users which are expected to be particularly affected by the ETS reform.

Based on official Eurostat data collected from Member States and input from public consultations, the Commission has identified a certain number of sectors that are deemed to be at a significant risk of carbon leakage. Carbon leakage means that global greenhouse gas emissions increase when companies in the EU shift production outside the EU because they cannot pass on the cost increases induced by the ETS to their customers without a significant loss of market share to third country competitors. The Commission has assessed in which sectors there existed a genuine risk of carbon leakage and consulted Member States and stakeholders. If the conditions set out in these new rules are met, aid to compensate for EU ETS allowance costs passed on to electricity prices in these sectors will be considered compatible with the internal market.

The new rules carefully balance several key objectives. They aim to mitigate the impact of indirect CO2 costs for the most vulnerable industries, thereby preventing carbon leakage which would undermine the effectiveness of the EU ETS. At the same time, the rules have been designed to preserve the price signals created by the EU ETS in order to promote a cost-effective decarbonisation of the economy. They are also designed to minimise competition distortions in the internal market by avoiding subsidy races within the EU at a time of economic uncertainty and budgetary discipline.

The rules allow subsidies of up to 85% of the increase faced by the most efficient companies in each sector from 2013 to 2015, a cap that will gradually fall to 75% in 2019-2020.

Moreover, the construction of new highly efficient power plants which will implement an environmentally safe capture and geological storage of CO2 (CCS-ready) by 2020 may receive support of up to 15% of the investment costs.

Background

In March 2007, the European Council adopted a climate and energy package, with the aim to combat climate change and increase the EU’s energy security while strengthening its competitiveness. The ETS Directive as amended in 2009 is a central component of that policy. It lays down two binding targets to be achieved by 2020: first, a reduction of CO2 emissions by 20% from the emissions level in 1990 and, second, increasing the share of renewable energy sources in the EU to 20% of overall energy consumption over the same time span. At the same time the European Council established a (non-binding) target to increase energy efficiency by 20% by 2020.

The 20% reduction target remains valid, although the EU is committed to moving to a legally binding 30% reduction commitment depending on international action. The EU's objective is to reduce CO2 emissions by 80-95% by 2050.